FHA Appraisal Identity of Interest

[Honey West]

Purchaser is the current tenant, agreement structured with high LTV, property not listed on MLS; so I double checked “ Arms-length” definition. By HUD definition it is not arms length due to Landlord/ Tenant=Seller/ Purchaser, so will require higher down payment. I want to “ stay in my lane” but feel apprehensive for some odd reason. It is definitely not Arms-length, and I state that in the Sales agreement analysis, right?

 

[Renee Healion]

Yes. Call it like it is.

Let me edit your OP like this" Purchaser is the current tenant...By HUD definition it is not arms length due to Landlord/ Tenant=Seller/ Purchaser... I state that in the Sales agreement analysis"

 

[Honey West]

Yes. Call it like it is.

Let me edit your OP like this" Purchaser is the current tenant...By HUD definition it is not arms length due to Landlord/ Tenant=Seller/ Purchaser... I state that in the Sales agreement analysis, right?"

Thank you! Just a new scenario for me, and wanted to verify since it’s a deal killer ( not my concern, but being absolutely certain about the definitions is.)

 

[spittman]

... it’s a deal killer ( not my concern, but being absolutely certain about the definitions is.)

why is it a deal killer?

 

[Renee Healion]

To the OP: You just do the appraisal, spell out the contract terms. It is not your concern (or fault) if they structured the contract without considering FHA requirements (for LTV). If they are motivated, they can renegotiate to meet the guarantor's terms. Edit: There may be some exceptions that apply. I looked up "identity of interest" and see mention of tenant and landlord who have no such conflict. That, I do not understand, because to me they do have a business relationship.

 

[Honey West]

why is it a deal killer?

Because the down payment will now be 15% of the purchase price, instead of 3%. Perhaps they can renegotiate, but the purchase agreement reflects the 3% down, and the amount of the FHA Loan is specified, and with the non-arms length transaction they will not be able to finance that amount with an FHA loan.

 

[Honey West]

To the OP: You just do the appraisal, spell out the contract terms. It is not your concern (or fault) if they structured the contract without considering FHA requirements (for LTV). If they are motivated, they can renegotiate to meet the guarantor's terms. Edit: There may be some exceptions that apply. I looked up "identity of interest" and see mention of tenant and landlord who have no such conflict. That, I do not understand, because to me they do have a business relationship.

Right! That's why I hesitate to make a definitive statement, however, everything I read says it is Non-arms length with these facts.

 

[Renee Healion]

When I write something that I think could be controversial to a reader or subject to argument or just various alternative interpretations, I write out the logic: the question was this, I researched that, and arrived at the following conclusion. You could write what you basically have expressed here. If someone disagrees, they will appear in short order to tell you so , and they should cite their reasoning. Your appraisal is for MV, which you will have done. If there is some good reason why your logic was flawed in reporting this one matter, then you can just revise that part easily.

Or, you could call the FHA field office for your region and ask. And please post it, if you do.

 

[J Grant]

not arms length, keep it simple, tenant is buying so what happens often. Just explain. Where did you come up with that non arms length requires a higher down payment in FHA????

We are appraising the property, not the contract ....just state what you know, go on and appraise the property.

 

[J in Florida]

Buyer and seller can doctor this deal up no problemo, just put in a "decorating allowance" on an addendum and bump up the purchase price that doesn't make it to the lender and appraiser. Then they can find a title company to look the other way, problem solved. I've never seen that happen before.